Annuity Interest Rates

Annuity interest rates are said to be closely related with treasury interest rates because the up and down in treasury interest rates tends to the fluctuation in Annuity interest rates as well.

The reason behind this is that the insurance companies typically invest in interest-bearing instruments. For example if the interest rates on the 10 year treasury note are increasing then the insurance company can rise the rate it pays on a 10-year annuity and on the other hand if the rates are declining then the insurance company can decrease the rates whatever it is paying.

 
Annuities of different durations or maturities typically offer different interest rates. When an insurance company sets the rate of interest on an immediate annuity it first determines the projected duration of the income stream for the annuity. For example 90 years old purchase an life annuity and a 65 years old is also purchasing the same life annuity then the expected number of payments the insurance company is obligated to make will be fewer for the 90 year old than 65 year old. This difference is attributable to their varying life expectancies.

Current interest rate is the interest rate that an annuity is paying it is the sum of the base rate, if any and the bonus rate, if any. The current rate is set by the insurance company at the time of issue and is guaranteed for specific length of time.

"Floor" is the minimum interest rate that can be credited to your policy equity index annuity in a year or over the term of your contract. Interest that is credited to your policy is added to your principal as well as interest credited in prior policy years. Some companies do not compound the gains credited to equity index policies from prior years. This dramatically reduces the overall rate of return earned by your money.

Before investing in any annuity or buying an annuity the investor should know about the terms and conditions of that annuity. The most important thing to know is the interest rate it is paying. One should keep in mind that annuities typically follow the direction of longer term interest rates. Anyone in the market to buy an annuity during the past year and has been waiting for interest rates to move up, has generally been disappointed.